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European Central Bank President Christine Lagarde said Europe’s labour market has remained significantly stronger than economic models predicted, with employment rising 4.1% between the end of 2021 and mid-2025. Speaking at the Federal Reserve’s Jackson Hole symposium, she described the outcome as remarkable given the sharp inflation shock and the ECB’s aggressive interest-rate increases over the past three years. Lagarde credited the resilience to easing supply constraints, lower energy prices, temporary fiscal support and shifts in working patterns, which together allowed inflation to retreat "at a remarkably low cost" to jobs. While policymakers have paused further moves after eight rate cuts, keeping the deposit rate at 2% since July, she cautioned that the unusual mix of tailwinds may fade and demographic pressures could curb productivity unless offset by technology and artificial intelligence. Inflation is projected to converge on the ECB’s 2% goal by 2027. Turning to trade policy, Lagarde argued that Washington’s new 145% tariff on Chinese goods should inflict only a small drag on euro-area output. She said European companies will adapt to the higher levies and that the measures are unlikely to derail what she described as a resilient—if "not thriving"—regional recovery.
